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Archive for Wednesday, June 11, 2003

Lawmakers wary of Freddie Mac’s pay deals

June 11, 2003

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— Lawmakers raised questions Tuesday about the pay deals Freddie Mac is giving the top executives it ousted in a shakeup over accounting problems.

The mortgage-market giant was not making terms of the executives' packages public, bringing further criticism of the company by lawmakers.

"Freddie Mac's failure to disclose this information illustrates why voluntary disclosure, without the force of law, is meaningless," said Rep. Christopher Shays, R-Conn.

As ripples continued to fan out from the surprise leadership coup at the government-sponsored company, senior lawmakers also raised concern about a possible affect on the housing market, one of the few bright spots in the economy.

Freddie Mac said on Monday it fired its president and chief operating officer, David Glenn, because he didn't fully cooperate with an internal review of the company's accounting -- now under investigation by federal regulators.

The company also said chairman and chief executive Leland Brendsel had resigned, along with Vaughn Clarke, the company's executive vice president and chief financial officer.

Glenn will not receive special compensation benefits because he was fired, Freddie Mac officials said. Terms of the deals with Brendsel and Clarke were not disclosed. The executives signed the agreements with the company in September 1990, long before Freddie Mac voluntarily agreed last summer amid the wave of corporate scandals to begin filing audited annual and quarterly financial reports to the Securities and Exchange Commission. It had been exempt from the disclosure requirements that apply to most publicly traded companies.

"We provide an array of documents to the public about our financial situation and we file annual proxy statements about the compensation of our senior management," Freddie Mac spokesman Douglas Robinson said Tuesday in a telephone interview. He declined further comment.

The federal agency that oversees Freddie Mac, the Office of Federal Housing Enterprise Oversight, is investigating the company's accounting.

And the SEC has begun an investigation, a person familiar with the matter said Tuesday, confirming a report in The Wall Street Journal. The person spoke on condition of anonymity.

SEC spokesman Herb Perone declined comment.

Some senior lawmakers expressed concern about what affect Freddie Mac's troubles may have on the housing market, as banks could sell fewer mortgages to the company and the international stream of capital into the U.S. mortgage market could be reduced. The company boasts that it bought a mortgage every 11 seconds in 2001: $384 billion of single-family mortgages and double the rate the year before.

The new revelations "might have systemic implications and touch even the smallest and most innocent participants in the housing market," said Rep. Richard Baker, R-La., chairman of a House Financial Services subcommittee.

In a market roiled over the past year or so by a wave of corporate accounting scandals, news of the Freddie Mac shakeup Monday worsened a decline on Wall Street that interrupted the market's three-month upward climb.

Freddie Mac and its larger sister Fannie Mae are major players in the multibillion-dollar home mortgage market. Created by Congress to buy home loans from banks and other lenders to supply ready cash, they buy mortgages from lenders to keep in their portfolios and package others into securities for sale on Wall Street.

Fannie Mae and Freddie Mac enjoy some special benefits, such as the ability to borrow directly from the Treasury. But they are not directly guaranteed by the government.

Earlier this year, Federal Reserve Chairman Alan Greenspan expressed concern that Freddie Mac and Fannie Mae may not have adequate capital and that many investors have the misperception that they are backed by the government.

In January, Freddie Mac restated its earnings for 2000-2002, after its new auditor recommended changes to its accounting policies to reflect higher earnings from the complex financial instruments called derivatives. The company fired Arthur Andersen LLP as its auditor in March 2002, replacing it with PricewaterhouseCoopers.

The company, with 3,900 employees based in McLean, Va., had $5.8 billion in revenue and assets of $617 billion in 2001.

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